In May 2004, the building owner applied for insurance from New India Insurance Company Limited. On the proposal form the owner described the Tenant's business as "wholesaling kitchenware". He also confirmed that the premises were protected by an automatic sprinkler installation.
The policy mentioned that the insurance could be avoided by the insurer if there were misrepresentation, mis-description or non-disclosure and would not be effective if the premises were materially altered or if there were a material change in the content of the proposal form (unless the insured had otherwise agreed to continue the insurance).
The policy included the usual non-invalidation clause, under which the insurance would not be affected by an act or neglect without the owner's authority or knowledge.
After the fire it was found that the sprinkler system had been turned off and a filing cabinet had been positioned in front of the valve to prevent it being turned back on. The Tenant had failed to pay water charges and the water company had disconnected the supply one month previously. Children's scooters and small petrol powered motor bikes were also stored on the premises, which the insurer argued was not kitchenware mentioned on the proposal form.
When the insurers refused to pay under a claim, the High Court found that the owner must have known that the sprinklers had been switched off and could not rely on the non-invalidation clause. Turning the sprinklers off constituted a material alteration to the subject matter of the insurance and the new risk fell outside the scope of the original policy.
The owner appealed on the grounds that:-
The Court of Appeal found that the proposal form was to be read as if the sprinklers were fully operational. Turning them off for an indefinite period constituted a material change to the premises and was therefore within the policy exception. "Properly functioning" meant the sprinkler had to be permanently ready to operate without human intervention. It did not mean that it was capable of operating if turned on.
The position might have been different had the premises been unoccupied when the fire broke out. The Court drew a distinction with cases involving intruder alarms. Automatic sprinkler systems were seen by the Court as an integral part of a building and, unlike an intruder alarm, were intended to function permanently. Temporary turning off a sprinkler system for maintenance or to prevent damage elsewhere was understandable. Here the Tenant had intentionally turned the sprinklers off for an indefinite period.
Insurers would not have contemplated that the sprinklers would be turned off indefinitely. Under the insurance policy, if they were, the owner would need to inform the insurer to allow an informed decision to be made. The building owner had visited the premises frequently and had been aware that the sprinklers had not been operational for some time. As he had failed to notify the insurers, he could not rely on the non-invalidation clause.
There has been criticism of the harsh consequences of an insurer's ability to avoid paying on the basis of non-disclosure. This is currently under review by the Law Commission. Landlords should ensure that Tenants are kept informed of the terms and conditions of insurance polices and changes that might occur during the Lease. Landlords are recommended to require Tenants to notify the Landlord of anything that might affect the insurance policy and to require fire safety apparatus to be properly maintained.
Owners should check the functionality of a sprinkler system when inspecting premises and ensure that any systems are turned off only for maintenance purposes and any repairs are carried out promptly.
Ansari v New India Insurance Company Limited 2009
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